The platform aspects of Xilinx and Altera’s business model do not require that the companies offer the best of breed technology; although they often do. The PLD (programmable logic market) market is not prone to the extreme price competition seen in the ASIC (application specific integrated circuit), generic processor, and memory markets due to the high barriers to entry caused by the required software platforms and the lock-in once a vendor selects a PLD design platform. This makes the two dominant PLD vendors, who control over 80% of the market, very profitable with net margins over 20%.
The PLD market will see solid growth for years once several macro trends emerge causing a tipping point in PLD demand. These emerging trends are
- The increasing complexity of new semiconductor devices
- The new markets for PLDs due to microprocessor performance barriers and dramatically shortened end product lifecycles
- The maxing out of the current communications infrastructure
- World-wide growth due to globalization, potentially temporarily restrained due to a US consumer led recession
Semiconductors often act as a leading indicator for the technology industry. Xilinx and Altera are up 27% and 18% respectively this year after several years of their stocks floundering with negative returns. With Xilinx and Altera’s accelerating design wins it appears the still have considerable room to run.
If you have any questions or comments related to the posts from this paper shoot me an e-mail. You can view our entire paper on the Next Generation of Semiconductor Design or use the links below to jump to specific posts from the paper.